Running out of time to sell flip property, looking for options

20 Replies

Hi all,

Looking for some guidance, any thoughts on possible outs would be much appreciated. I've invested in/renovated a number of single family properties in the suburbs of Philadelphia (Mainline), with values ranging from $400k-$1.3m and decided to tackle a significantly larger project 6 months ago; comps were incredible with high sale prices and very low days-on-market, it looked like a home run.

The loan is under an LLC but with a personal guarantee; the renovations are complete and the house is beautiful, but the market has been unbelievably slow compared to the previous 3 years, on which our financials were based. We've been on the market since early Spring and despite significant price drops ($500k in total reductions), we're running out of runway before the loan maturates and funds on hand are depleted. Marketing has been fulsome, price reductions have been aggressive and though a refi into a longer loan is an option, we're not in a position financially cover the holding costs much longer. And, I'm personally on the hook for any loan defaults.

While we continue to aggressively drop the price and hold open houses, I've called number of cash-for-homes companies but have been told it's outside their typical purchase criteria. I'm considering approaching the lender about a deed-in-lieu-of-foreclosure, given the 7-figure difference between appraised value/loan balance, I'm hoping that would be a solid last resort.

Keen to hear if anyone has been through a similar situation and whether there's any other creative solutions I should consider. 

Sincerely,

Michael

Can you refi, rent or sell your primary? Would you consider moving into the flip house?

Maybe put the address on here and let the community posit on what to do marketing wise?

What feedback are you getting on this as to why it isn't selling?  what is your current asking price?  Something is drastically wrong here. Give me a bit of detail about the house and how you constructed your original math? I am assuming that the lender did their due diligence on this project, so I suspect that something is wrong with the renovation rather than the price, but I am not sure yet.

Will - I'm working to refi primary and another rental we have, but selling the primary before running out of cash on hand is doubtful (it's also an expensive property) and we'd need to sell one property to be able to carry the flip house mortgage long term. We've closed some stock positions to boost funds, but I'm trying to balance a slow bleed vs ripping the Bandade, so to speak. With the lack of movement in our area, it's hard to say whether its worth securing the funds to carry the property through the Winter in the hopes of the market improving in our area and us finding a buyer.

Josh - Feedback on the renovations we completed has been positive, with the main suggestions being that it should be under $2m, that the ceilings are low on the ground floor (8ft) and some of the guest bedrooms are a small for the price point. Here's the specifics on the property and financials:

- 7,000+ square ft, 5 bed, 4/2 bath on 3 acres with a pool

- Purchased for $970k, ~$750k rehab budget (actual spend went over) and ARV of $2.56M

- Listed for $2.4m, with a neighbor listed at $3M and 5+ comps between $2.3M-$2.7M

- Current list is $1.9m.

The last 2 years, we've seen homes comparable to ours moving within 10 days on the market, yet all comps are sitting tight at their original list prices with nothing going under contract. This lack of activity across the board is the biggest concern, hence the interest in contingencies such as deed-in-lieu-of, or similar, in the event that the continued marketing, open houses and aggressive price drops don't generate a buyer.

@Account Closed

You didn't say whether or not you have it listed with a Realtor or not.  Full disclosure I am a Broker and a Realtor in PA. and I think a good Realtor will help sell the property.  We had a property out of state that was high priced, we listed it with the Number 1 sales agent in the county where the property was located and got an offer in 4 days.  The property was in primo condition and was staged with nice new fashionable stuff by a professional stager.

1. If a property is not listed, that discourages agents and brokers from showing.

2. Listed properties are listed on Realtor.com and sometimes 30 to 100 different web sites, the exposure is tremendous, more than you can get by yourself and locally.

3.  I've seen renovations that just down't quite have it.  You mentioned some small rooms, this often happens when a large addition is attached to an older smaller house.  Its like a contradiction, some large open rooms and some small comparmentalized rooms.  It just doesn't fit.  we did a reno where we more than doubled the square footage, but in that process, several of the existing rooms were expanded and made larger, along with additional rooms which were larger.  We also striped the siding and the roof and added all new so that the old part of the house matched the new part of the house.  Part of the facsade of the house was stone, we were able to salvage some stone off the house but ended up getting "NEW"stone from the same quarry as the original to blend in.

4.  The higher price markets are thinner, less buyers in the pool, also the buyers are imho, more fussy.  One little thing can turn off the finicky buyer and out weigh all the good features.

David Krulac

David - thanks for your thoughts. Yes, it’s listed with a licensed agent and the brokerage is well versed in moving high dollar properties in our area. Online coverage has been broad too, with a heavy East Coast focus but extending as far as the Time’s newspaper in the UK and James Edition in China. 

Address: 118 Jaffrey Rd, Malvern, PA 19355

Your agent is mainly a Radnor/Lower Merion agent ... obviously she does high-end listings, but I'd probably go with someone more local like Robert Van Alen who only has 7 active listings all of which are close by to yours ... your current agent has 19 active listings, meaning that at best, you get 5% of her workable time, not factoring in new business generation, being further from most of her listings, and higher end listings taking priority.

Also, do understand, the Philly market overall has slowed quite a bit compared with just 6 months ago ... so even a new agent can't work magic. 

Looks real nice on Realtor.com. Bottom line if it is exposed to the market and marketed reasonably well, and does not sell, the price is probably too high. Ouch. GLWS.

Nice property.... There is nothing wrong w the property itself that I can see, other than that fact it is in a neighborhood of ~$700K ....

Selling a $2M property in a $700K neighborhood will take a LOT of time...

Appreciate the commentary so far, but Diane - your cursory glance at the area is totally inaccurate.

Hoping we can get back on track and have a factual conversation about strategies others have used to create additional exits when offers aren’t where they need to be.

what is the number of recent sales in that price range? None? Several in last few weeks? Drill down a bit, is it the market or the home itself?

A sense of urgency in your marketing might help, as it seems someone is going to get a tremendous value!

You have two sets of possibilities, one this forum can help you with, one it can't.

Financing, what are the major terms, what kind of lender are you working with? Could you refinance with another lender, even at a lower loan balance if the appraisal doesn't come in, and make the difference up in cash yourself from the current steps you're taking (refi primary, liquidate stocks, personal loan from family/friends, etc)? Do you have a relationship with a local lender that would be more willing to work with you now & in the future vs. a larger institution to whom you're just a number and they don't really care about at all. You also live in this community, correct? This is a very well to do area, you must have connections in finance realm that might be able to get creative with the numbers, or personal connections that would be willing to ease the burden for you over the short term and get a cut of your profits on future flips where you stay within your profitable sweet spot.

Your other set of possibilities are legal, and that is really something you need a good PA real estate attorney to pour over your loan docs to see what your options are. https://www.foxrothschild.com/gregory-j-kleiber/

Hi Michael,

I am also from Newtown Square and do high end flips on the mainline in PA.  I have a few options for you, one of which could get you a sale within 30 days, cash sale.  I also took a look at your work, well done.  Would love to see it in person too.  Looking forward to connecting, and hopefully, I have an option that will work for you!

-Ashley

You are not alone. Even in west coast very with low unemployment rate(<1.2%) high income neighbors flipped on regular sized homes are not going well. 45 days market with zero offer vs 1 weekend with 10  offers experienced until a few months ago. Imminent Interest rate increases through 2019 will negate any appreciable price increase and indication of a general cooling off nationwide is coming.

You should approach the lenders to let them have the project. Is short sale an option?

Good luck.

Thanks for all the commentary and suggestions.  Currently looking into refinance and rent as an option, as well as switching brokers and a further price reduction.  Hopefully one of the 2 will result in a change of fortune, I'll report back.

@Account Closed I spent some time looking at your listing on Realtor.com.  First, the home looks magnificent - congrats on a very nice job on the rehab!

Unless there's something I'm not seeing in the photos, the problems you have moving the property are clearly not due to the property itself.  The map suggests that there are no issues with the location either (train tracks, air strips, busy roads, etc).

Conventional wisdom says that leaves three possibilities:

1. Price.  This is the most common.  If you drop it to $1.00 it will sell instantly.  If you list at $50M, it won't sell at all.  Somewhere in the middle is the right price.  It may be that you're still too high.

What did your comps say when you bought it?

Also, Realtor.com says you bought it last year at $971K.  Did you really add $1M in value in your rehab?  Or did you get a steal when you bought it at $971K?

Realtor.com shows comparable properties priced substantially lower: $1.575M (6 White Horse Meadows), $1.665M (2336 Pikeland Rd), $1.549M (2301 Diamond Rock Hill Rd), $1.5M (107 Mine Rd).

2. Marketing.  It sounds like your agent is doing all the right things, though it shows as "off market" right now. I suspect that you're changing agents at the moment.  The photography is very well done.  Certainly worthy of a home in this price range.

3. Demand.  Your agent can fill in your data.  Here in Plymouth County, MA, I looked at homes sold in the last 6 months:

$750K - $1M.  239 sales, average 65 days on market.

$1M - $1.5M. 94 sales, 101 days on market.

$1.5M -$2M. 22 sales, 205 days on market.

Compare that to the entry level ($300K - $350K) where there were 331 sales in 3 months, averaging 37 days on market.  The demand for higher priced homes is there, but they move more slowly.

At this point, I'm leaning toward the main issue being price. Again, I can't access your MLS so I don't have the level of detail I'd like, but it looks like you're priced $300,000 - $400,000 above competitive properties. That would concern me.

Good luck - it's a beautiful home.  I wish I could move it to MA and buy it!

@Charlie MacPherson - Thanks for the thorough investigation and detailed note. Appreciate your compliments on the property and our renovations too. To answer you questions, the comps at the time of purchase provided an ARV of $2.56M, based on 137 Jaffrey ($3M settled), 147 Jaffrey ($2.95M active), 6 Horsehoe Lane ($2.95M settled), 34 Rabbit Run ($2.7M active), 8 Greenbriar Lane ($2.7M settled). Those you listed will definitely be in the consideration set for buyers looking at our area but they're not apples to apples comps, given they're mostly newer construction and in HOA developments vs ours being a standalone single family with longer history. Our agent landed on the same comps as our lender too, hence out confidence to invest what we have to date.

In terms if value, I definitely believe we added $1m+ to the property. It’s literally a brand new house inside an existing structure, we replaced absolutely everything and our investment is almost at that number too.

I believe our issue is 2 fold: price and time. A neighboring property held firm at $2.95M (6 Horseshoe Lane) for more than a year and ended up selling at that number. Compared to our direct comps, we’re aggressively priced, now more and $1m lower than 147 Jaffrey which is smaller than ours with far fewer updates; we just don’t have the runway to hold firm at a higher number while waiting for a buyer to bite.

We’ve now switched agents, taken new photos and have a fulsome marketing plan in place. Listing goes live tonight. Wish us luck!